Why are cryptocurrencies going down – Introduction
If you’re someone who likes to know everything about economic news, you ‘ve probably seen the price of cryptocurrencies often go up and down. Because of this fluctuation, you’ve probably insecure about investing in a certain digital currency. After all, why are cryptocurrencies going down?
In this article, we’ll show you factors that affect cryptocurrency’s price. We hope that it helps you learn how to make a proper investment plan!
Volatility
Financial market volatility is the first reason that causes the price of cryptocurrency to go down.
Thus, the fundamental law of supply and demand has a high impact on trading prices. In order to better understand, we’ll show you three different ways of dealing with crypto’s price falling. Check them now!
Limited supply and unstable liquidity
Generally, some cryptocurrencies are finite in supply. It means that most crypto, at any given moment, won’t be mined anymore. Therefore, will have a limited supply of crypto units available. Thus, only the digital currencies that are on the market will be circulating or will get into the trader’s e-wallet.
It causes most of these cryptocurrencies deflationary and it tends to climb their selling prices due to the quantity limit for trading. In other words, the same amount of cryptocurrencies for an increasing number of Dollars tends to cause a jump in cryptocurrency prices in relation to the American coin.
However, there is another point to be considered: The number of people who invest in cryptocurrency and can pay for it no matter what it’s cost.
There is not always a crypto’s demand, thus affecting its liquidity. After all, you may want to sell a certain amount of it, but maybe it won’t be possible.
Whether due to the lack of interested people or perhaps the investor hasn’t enough money to purchase it.
Stopping cryptocurrency improvement
Projects involving cryptocurrencies depend on qualified professionals e.g.: developers. These types of professionals are responsible for frequent maintenance, bug fixes and transaction optimization techniques, in e-wallets as well as Blockchain.
However, when a developer doesn’t make any improvement in a cryptocurrency, it tends to become obsolete within the ecosystem and less attractive on the market. It results in currency devaluation.
When this sort of situation occurs, it may affect the crypto ecosystem generally, boosting prices down.
Bitcoin crash
Bitcoin (BTC) is the most purchased, held and traded cryptocurrency on the market. Therefore, when its price goes down, it tends to affect other crypto prices, such as: Ethereum (ETH), Theter, Dogecoin, Cardano and so on.
Let us give you an example: In May 2021, Elon Musk, CEO of Tesla, said on Twitter that the company would suspend vehicle purchases using BTC out of concern over the “rapidly increasing use of fossil fuels for bitcoin mining. After Musk’s announcement, BTC was down 10%.
Using crypto in different countries
The second reason that causes cryptocurrencies oscillation, is how different countries all over the world are facing them. Now, we’ll give you two cases that affected these assets’ price on the financial market.
The case of El Salvador
El Salvador is a country in Central America. In September 2021, it became the first country to adopt BTC as legal tender, making the cryptocurrency an accepted means of exchange for goods and services.
However, El Salvador’s decision to be the first world economy to make BTC legal tender didn’t help the cryptocurrency’s value. After El Salvador’s announcement, BTC crashed more than 10%. Consequently, other cryptocurrencies, such as: ETH and Dogecoin, also dropped.
Despite this, BTC prices climbed a day after the country passed a law to adopt it as legal tender.
The case of China
Still in September, China’s most powerful regulators intensified a crackdown on cryptocurrencies with a blanket ban on all crypto transactions and mining, hitting Bitcoin and other major digital currencies.
China’s tough stance against cryptocurrencies made BTC and other major cryptocurrencies plunge in their prices. The price of BTC fell about 7% in a few minutes after Chinas’ announcement.
However, the price of BTC jumped as fast as occurred in El Salvador.
Exchange closed and cyberattacks
Finally, we’ll introduce you to the third reason that makes cryptocurrencies’ prices fall: Cyber Security Threats.
Check this out on our post: Are cryptocurrencies safe?
It’s worthwhile to note that Blockchain technology is constantly reviewed by a network of users, which makes it difficult to hack. However, when we talk about exchanges’ security systems, it’s not that simple.
A few years ago, Foxbit, one of the largest exchanges in Brazil, suffered a lot of cyberattacks. This situation led to a massive data leak as well as a theft of digital currencies.
Negative impacts were caused by the situation. For instance: It affected the trust of newbies and experienced investors. Consequently, crypto prices fell at that period.
Why are cryptocurrencies going down – Conclusion
Cryptocurrencies are still establishing on the financial market outlook, and these points we introduced to you are only some examples that can make crypto prices drop. As mentioned previously, external context can affect digital currencies, making their prices go up or down in the twinkling of an eye.
However, BTC and the other cryptocurrencies’ prices are able to jump again after going down for some reason.
Looking from a macro scenario perspective and according to analysts, the outlook is a long-term positive.
What you need to understand in this article is that you have to invest cautiously and don’t get desperate when crypto prices go down.
It’s essential to keep learning and studying how the crypto market works. It’s also important to develop your skills for investing wisely. After all, this is your best shot!
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